While many U.S. companies initially hoped to "grandfather" their existing health plans, most have come to believe this won't be possible. Ninety percent of large U.S. companies said they expect to lose grandfathered status by 2014, with the majority expecting to do so in the next two years, a survey by consultancy Hewitt Associates shows.
Under the "grandfather" provision of the Patient Protection and Affordable Care Act that became law in March 2010 and the Obama administration's final interim regulations issued in June 2010, companies can maintain many of their current health care coverage provisions if they do not change insurance carriers, reduce benefits or raise co-payment charges or deductibles significantly.
According to Hewitt's July 2010 survey of 466 large U.S. companies—representing 6.9 million employees—most expect to lose grandfathered status because of the following reasons:
• Changes to health plan design (cited by 72 percent of respondents).
• Changes to company subsidy levels (39 percent).
• Consolidation of health plans (16 percent).
• Changing insurance carriers (16 percent).
• Union negotiations (15 percent).
However, more than three-quarters of companies (77 percent) said that guidance on preventive care released in July 2010 will not impact their decision on whether to maintain grandfathered status. The guidance requires non-grandfathered plans to provide first-dollar coverage and eliminate cost-sharing requirements for listed preventive services—coverage that most large employers already provide.
Wanted: Flexibility to Change Benefits
The survey found that among companies with self-insured plans, most (51 percent) expect to first lose grandfathered status in 2011 and 21 percent plan to lose status in 2012. This timing is similar for companies with fully insured medical plans, with the majority expecting to lose status in 2011 (46 percent) or 2012 (18 percent).
"Employers reviewing their existing health care strategies in light of reform are focused on answering two questions: What changes do I need or want to make to my health care plans, and how can I make them without significantly increasing costs?" says Ken Sperling, leader of Hewitt's health management practice.
"After assessing the grandfather provision," Sperling adds, "large companies realize they already comply with many of the requirements of non-grandfathered plans, so the changes they'll need to make aren't likely to add a significant cost or administrative burden. Most large employers would rather have the flexibility to change their benefit programs than be tied down to the limited modifications allowed under the new law."
Majority of Large Employers Revising Health Benefits in 2011
Most large U.S. employers are moving forward with plans to make changes to their 2011 health care benefit programs in the wake of expected large health benefit cost increases, according to a survey by the National Business Group on Health, a nonprofit association of large employers. The survey, based on responses from 72 of the nation’s largest corporations representing more than 3.7 million employees, was conducted in May and June, 2010.
More than half (53 percent) of respondents were planning to make changes to their benefit plans despite the uncertainty that exists around complying with the Patient Protection and Affordable Care Act, the health care reform law enacted in March 2010, the survey found. Another 19 percent were scaling back changes they planned to make while an equal number were making no changes. The remaining respondents were still undecided pending further review of the final regulations.
According to the survey, employers estimate their health care benefit costs will increase an average of 8.9 percent in 2011, compared with an average increase of 7 percent in 2010. To help control cost increases, employers are planning to use a wider variety of cost-sharing strategies in 2011 that include:
• Increasing the percentage employees contribute to the premium (63 percent).
• Raising out-of-pocket maximums (46 percent).
• Raising in-network deductibles (44 percent).
• Raising out-of-network deductibles (40 percent).
• Raising co-pay/co-insurance for specialist care (21 percent).
• Raising co-pay/co-insurance for primary care (6 percent).
In addition, more employers are moving to a full-replacement consumer-directed health care plan (CDHP), typically a health savings account or health reimbursement arrangement, as their sole coverage option. The survey found that 20 percent of large employers have or plan to go to full-replacement CDHPs in 2011, while 41 percent have or plan to offer CDHPs along with a traditional health plan.
Stephen Miller is an online editor/manager for SHRM.
SHRM Seeks Changes to Grandfathered Status Rule, SHRM Online Legal Issues, August 2010
Administration Issues Regulations on First-Dollar Preventive Care, SHRM Online Benefits Discipline, July 2010
Rules Would Restrict Employer Changes to Health Care Plans, HR News, June 2010
Grandfathered Status Rule’s Impact on Group Health Care Weighed, SHRM Online Legal Issues, June 2010
Special 'Grandfathered' Rules for Insured Collectively Bargained Plans, SHRM Online Benefits Discipline, June 2010
SHRM Online Benefits Discipline
SHRM Online Health Care Reform web page